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Tax Stimulus Report Card: Senate Bill

The Tax Policy Center has graded the key tax provisions of the pending Senate stimulus bill (the "American Recovery and Reinvestment Tax Act of 2009", as amended). Our grades reflect how well these measures would boost the economy in the short run per dollar of budget cost (sometimes called "bang for the buck"). Details of our analysis are below the report card.        PDF Download complete report card in PDF format

senate stimulus bill report card

Tax provision

Stimulus effect

Ten-year revenue cost1

Comments (click on a provision for details)

Individual Income Tax Provisions

"Making Work Pay" tax credit
B

$139.4B

Could start quickly. Payment in small increments may increase stimulus effect but two-year limit and high-income eligibility reduces impact.

Increase in earned income tax credit
B

$4.7B

Highly targeted. Gives cash assistance to low-income families most likely to spend quickly but slow to start.

Increase eligibility for the refundable portion of child credit
B

$7.2B

Highly targeted. Gives cash assistance to low-income families most likely to spend quickly but slow to start. Likely pressure to make permanent.

"American Opportunity" education tax credit
B

$12.9B

Slow to start. Refundable, so it goes to low-income students. Low-income households likely to spend quickly but only when funds become available.
Homeownership Tax Credit  dplus

$39.2B

Small short-run stimulus to weak housing market.  Large windfall gains to people who would buy anyway.  Eliminating repayment simplifies administration.
Temporary Suspension of Taxation of Unemployment Benefits  b minus  

$4.7B

Generally not effective until early 2010.  Goes to households whose income has fallen, increasing stimulus effect.  Would be much better if reformulated as an increase in benefits.
Automobile Sales Tax and Interest Deduction  c minus  

$10.5B

Likely only small increase in demand for new vehicles.  Benefits go to single industry.  Most value for high-income taxpayers who are more likely to buy vehicles, with or without tax subsidy.
Extend the alternative minimum tax patch through 2009 d minus

$69.8B

Neither timely nor targeted; makes no sense as economic stimulus.

Business Tax Provisions

Extension of enhanced small businesses expensing
B

$0.04B

Simplifies tax filing for small businesses and may encourage some businesses to accelerate decisions to invest in capital equipment. Impact is expected to be small and much of tax benefit is likely to go to businesses that would have invested anyway.

Extension of bonus depreciation
B

$5.1B

Previous experience suggests that investment effects would be modest at best. Severity of downturn decreases the stimulus potential. 

Five-year carryback of net operating losses
B

$19.5B

Increases effectiveness of temporary investment incentives such as bonus depreciation and expensing. By increasing cash flow to businesses, it could also stimulate new investment but the effect is likely to be modest.

Incentives to hire unemployed veterans and disconnected youth
B

$0.3B

Based on past experience with this wage subsidy, it is unlikely to generate jobs for the target groups.

Broadband tax incentives

B

$0.2B

Would spur some new investment but take time to materialize. Could pay for investments that would be undertaken without the credit.

Deferral of certain income from discharge of indebtedness

c minus

$0.8B

May help some companies deleverage, but much of the benefit would go to those businesses that least need assistance.

Increase in New Markets Tax Credit  B  

$1.0B

Any effect would likely be small and not occur quickly.  Well-targeted to communities likely to be most burdened by economic downturn.  Reduces borrowing costs for developers active in low-income communities
Renewable Energy Tax Provisions

Reinvestment in renewable energy
B

$20.1B

Some new investment would be added, but some projects may take time to gear up.
Tax Proposals Not Evaluated

$35B

 
All Senate Tax Proposals  

$368.4B

Tax provisions account for 44 percent of the cost of the Senate stimulus bill.

1. We cite "10-year" revenue estimates but the values reported include both the 10-year budget window - 2010-2019 - and 2009, because significant revenue reductions occur in the latter year.

Revenue estimates for the Senate bill come from Joint Committee on Taxation, Estimated Budget Effects of the Revenue Provisions Contained in the Collins-Nelson Amendment (#570) in the Nature of a Substitute to the "American Recovery and Reinvestment Tax Act of 2009," under construction by the Senate,  JCX-17-09, February 10, 2009.

For grading purposes, we assume that each provision will expire as scheduled and consider only the effects on aggregate demand (consumption or investment) or employment in the short-term.

Each grade depends on both timeliness and targeting. To receive an A, a provision would have to begin quickly and go primarily to people who would most likely spend it or to businesses that would most likely use funds to retain workers or expand.

We do not consider the long-term effects on the economy.

An additional web page describes current law, the proposed change, and the short- and long-term effects on the budget, the economy, fairness, and tax complexity. There, we also discuss the likelihood that each proposal would actually expire as scheduled and, for some provisions, explain what changes would raise the grade to an A.

Our report card is preliminary and does not include all of the provisions in the bill – most notably we omit provisions providing about $48 billion of fiscal relief for state and local governments.

We may evaluate additional provisions and adjust our grades and analysis as we learn more about the proposals. In addition, TPC will update its Report Card as the stimulus bill moves through Congress.